Section: REWARD RULES
It is surprising how many organized, process- and detail-oriented business professionals operate on an "MBMA" principle--management by magazine article. Every month I get at least one phone call from some top executive asking me how to implement an incentive program he just read about. They have difficulty grasping the notion that incentive plans should be customized to the needs of the business, and every business is different.
Incentives can be a powerful element of a business strategy or an expensive pain in the neck. Knowing where to start is the hardest part. Most people have a general idea of what they ultimately want, but do not understand their options. So here are some basics to consider when assessing different plans.
Incentive programs can be focused on the individual or group/team and are separated into five categories: compensation, capability, recognition, group and project team.
Compensation plans cover all those arrangements that ful-fill the employee-employer "contract," such as base pay, merit increases and benefits. Stock options are usually included in this category, even though they aren't always available to everyone.
Capability development plans focus on expanding employees' skills and competencies. The incentive is rarely a tangible reward, but a work enrichment experience and an expansion of individual career opportunities. Extra training and higher education programs are examples of capability development plans.
Recognition rewards are after-the-fact incentives. Instead of "do this and get that," recognition is more "I saw you do that and thanks." The reward can be anything, the point is to make sure it is done. Recognition is common for individuals, but any special or ad hoc project team's work should be acknowledged as well.
Group incentive plans reward employees for improving performance. The unit can be a division, department or work group, but it must be on the organizational chart. The goals can be anything from increasing sales to decreasing accidents or mistakes. The key is to find those critical measures of performance that determine the unit's role in the success of the organization.
A group incentive plans targets everyone within a unit, but whether all are rewarded depends on the parameters of the plan. Some group plans reward everyone if the unit as a whole reaches a goal. Others reward only individuals who achieve specific performance initiatives. Whichever you choose, it is important that the group incentive has a clear performance-reward schedule. Employees need to be able to count on earning a specific award for specific behaviors.
Project team incentive plans are for special groups assembled to focus on a specific endeavor, such as developing and implementing procedures to decrease mistakes m accounts receivable. These teams are not on the organizational chart and dissolve after the project is completed.
While shopping for a reward plan keep in mind two rules of thumb. First, an incentive is linked to the company culture. Plans reinforce and often shape the workplace environment. Those focused primarily on individual measures reinforce a driving, demanding and at times divisive culture.
Plans focused on organizational unit performance send a message of cooperation and group synergy, appropriate for those finns striving for a more team-based approach. Make sure the design sup ports your spoken pronouncements. Saying "we're all on the same team," but limiting rewards to a few outstanding performers, can be a confusing message.
Second, you can be simple or fair, but probably not both. A profit sharing plan for 2,000 employees is simple -- if profit improves, here's what each person will earn. Research shows that employees don't think it is fair, however. People rarely understand how to affect the year-end results in their daily duties, and too many factors that are out of their control influence profit. When the plan pays out, that's fine. But when it doesn't, all people see is that their hard work has gone unnoticed. Plans that include measures with a better line of sight (those within an individual's control) are not as simple, but are considered more fair.
A final comment: The more types of plans you have, designed synergistically, the better chance you have to energize your employees to affect the performance of the organization.
ILLUSTRATION
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By Jerry McAdams
Jerry McAdams is the national practice leader, reward and recognition systems, at St. Louis-based Watson Wyatt & Co. He is a keynote speaker and author of The Reward Plan Advantage.